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COURT OF APPEALS STATE OF NEW YORK ------------------------------------ PEGASUS AVIATION I, INC., Appellant, -against- No. 153 VARIG LOGISTICA S.A., Respondent. ------------------------------------
20 Eagle Street Albany, New York 12207
October 13, 2015
Before:
CHIEF JUDGE JONATHAN LIPPMAN ASSOCIATE JUDGE EUGENE F. PIGOTT, JR.
ASSOCIATE JUDGE JENNY RIVERA ASSOCIATE JUDGE SHEILA ABDUS-SALAAM ASSOCIATE JUDGE LESLIE E. STEIN ASSOCIATE JUDGE EUGENE M. FAHEY
Appearances:
RICHARD R. PATCH, ESQ. COBLENTZ PATCH DUFFY & BASS LLP
Attorneys for Appellant One Ferry Building
Suite 200 San Francisco, CA 94111
THOMAS C. RICE, ESQ.
SIMPSON THACHER & BARTLETT LLP Attorneys for Respondent
425 Lexington Avenue New York, NY 10014
Sara Winkeljohn Official Court Transcriber
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CHIEF JUDGE LIPPMAN: Number 153, Pegasus
Aviation.
Counselor, proceed.
MR. PATCH: May it please the court, my
name is Richard Patch. I'm with the firm of Coblentz
Patch Duffy & Bass in San Francisco, California. I'm
appearing pro hoc before this court.
CHIEF JUDGE LIPPMAN: Welcome.
MR. PATCH: And I want to thank you for the
privilege.
CHIEF JUDGE LIPPMAN: You want some
rebuttal time, counsel?
MR. PATCH: Three minutes, please.
CHIEF JUDGE LIPPMAN: Three minutes, go
ahead.
MR. PATCH: This case presents a
fundamental issue for you to determine and that is
the question, in the State of New York, is there
going to be a different, unique, and far more
burdensome standard in spoliation cases, in sanctions
cases, when the underlying claim involves an alter
ego claim? Because that's what happened in this
case, and the - - - the majority is clear - - -
CHIEF JUDGE LIPPMAN: Talk about alter ego
first.
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MR. PATCH: Sure.
CHIEF JUDGE LIPPMAN: Were there two
different organizations? Were they truly the alter
ego?
MR. PATCH: They are - - - we believe they
were truly the alter ego. They are - - -
CHIEF JUDGE LIPPMAN: But was - - - explain
why. Was the boards the same? Were there - - - how
was the control exercised?
MR. PATCH: They - - - they controlled the
board, they appointed the board, the - - - the
MatlinPatterson person in charge of the fund put his
sister on the board and made her president of the
company, they took a MatlinPatterson - - -
JUDGE ABDUS-SALAAM: Were they in control
of the board at the time that Pegasus first sued
VarigLog?
MR. PATCH: They were - - - no, we first
sued VarigLog in February of 2008 in Florida.
JUDGE ABDUS-SALAAM: And MatlinPatterson
was not in control at that time?
MR. PATCH: Well, they - - - they were - -
- they were not in charge at that time. There was a
- - - the sequence of events is they went down and
took over the company, and then for a period of time,
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they were in dispute with the Brazilian shareholders
who they had set up as sort of puppets, because
Brazilian law doesn't allow foreigners to own air - -
- airlines. So they had these three people, and then
they got into a dispute. And from the time of July
of 2007 until April of 2008, they had to go into a
Brazilian court and say, give us control of the
company. This is very important because this is
highly un - - -
JUDGE RIVERA: When did these guys get
appointed?
MR. PATCH: Excuse me?
JUDGE RIVERA: When did the Brazilian
Fiscais guys, the committee, get appointed?
MR. PATCH: During that period of time.
JUDGE RIVERA: February, March, when?
MR. PATCH: They went from supervisors to
oversight. And the important thing is, look, this is
not a case where they sort of accidentally up - - -
overstepped the bounds with regard to alter ego.
This is a case where they went to a court and they
said, we want you to allow us to administer and
control and operate this company as the shareholder.
That - - - an enor - - - unique set of facts, and
they did it, they took them partner, and they took
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one of their partners in Brazil and put him in charge
as the administrator.
CHIEF JUDGE LIPPMAN: No issue here of a
separate, independent board, as far as you're
concerned?
MR. PATCH: No. In fact, Judge Kapnick
says - - - almost tongue-in-cheek when she was ruling
on this motion, she says, quote - - - and this is at
page 20 - - - sorry.
CHIEF JUDGE LIPPMAN: That's okay.
MR. PATCH: This is at page 30 line 25, she
says, quote, "It's not like they had an independent
board", end quote. Because after they took over in
April, and they said we have control, we're taking
over the company, they - - -
JUDGE RIVERA: They control day-to-day
operations?
MR. PATCH: Day-to-day operations.
JUDGE RIVERA: They control negotiations
over the three or four planes and the rent arrears?
MR. PATCH: Absolutely. They said, we are
the people you have to negotiate with.
JUDGE ABDUS-SALAAM: So you - - -
MR. PATCH: And they appointed the board.
JUDGE ABDUS-SALAAM: - - - you - - - you
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say, counsel - - - you say in your briefs that we
understand that our burden on the alter ego theory is
different than control of the documents, and I know
we're backing into the sanctions again and the
spoliation, but - - - but you seem to be arguing now
that by virtue of their control of the company, if
there is a spoliation sanction, you've - - - you've
essentially won the alter ego theory as well.
MR. PATCH: No, in fact, that's the mistake
I'm trying to suggest to you that the majority made.
They said it would be tantamount to granting a
summary judgment. That's just plain wrong. That
concern - - -
JUDGE FAHEY: Well, the charge - - - the
charge is permissive, isn't it? The trial charge is
permissive.
MR. PATCH: There - - - there's - - -
JUDGE FAHEY: It uses language "may",
that's your point.
MR. PATCH: There's - - -
JUDGE FAHEY: It doesn't say shall.
MR. PATCH: I think there's three things,
actually. One is that there's nothing about the
charge that has to mention control whatsoever. The
jury doesn't need to understand that. What the
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charge should say is, you're instructed that VarigLog
and the MatlinPatterson defendants allowed documents
to be destroyed and therefore you are allowed - - -
you may infer - - - that there was material in there
adverse to their interests.
JUDGE RIVERA: But - - - but at the core of
that - - - I mean, essentially, isn't that that - - -
that they have control over these documents,
therefore they have control over the way the company
functions?
MR. PATCH: Well, they - - - they have
control - - -
JUDGE RIVERA: How can you separate that?
MR. PATCH: Because one test is control
over the events which give rise to the litigation.
JUDGE RIVERA: Um-hum.
MR. PATCH: Namely, did they control the
airplanes, did they make the decisions to convert
them, did they refuse to give them back, did they
refuse to execute the documents that would allow us
to remove them from their jurisdiction?
CHIEF JUDGE LIPPMAN: Well, what about the
Appellate Division's findings that - - - that this
would really severely prejudice them and that you're
not prejudiced?
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MR. PATCH: Well, first - - -
CHIEF JUDGE LIPPMAN: What's wrong with
what the Appellate Division's view that they have a
right to substitute their judgment for the judgment
of the Supreme Court, don't they?
MR. PATCH: They made three mistakes.
CHIEF JUDGE LIPPMAN: Go ahead.
MR. PATCH: They made a determination that
their documents weren't relevant, and in making that
determination, they made three mistakes. First, they
refused to follow all the other Appellate Division
cases with respect to what constitutes gross
negligence. We gave you a litany from Voom to - - -
to Sage. The - - - the - - - these cases show three
different things. One, no hold was issued, right?
And we have three cases, Hawley, Voom - - -
CHIEF JUDGE LIPPMAN: They gave you their -
- - their documents, right?
MR. PATCH: They did, but they didn't issue
- - -
CHIEF JUDGE LIPPMAN: Isn't that important
at all?
MR. PATCH: I don't believe it is. Now,
the Appellate Division did mention that and in GenOn
case, they mentioned that as well. But to me it's
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just the opposite. Look, if you did your own
documents correctly, you know what your duty is. You
know what you're supposed to do.
JUDGE ABDUS-SALAAM: According - - - und -
- - under your theory that MatlinPatterson controlled
the company, one of the catalogs or categories of
documents that you say are relevant and that were not
turned over are internal e-mails in VarigLog, so
wouldn't those have been turned over to you by
MatlinPatterson if - - - if your theory is correct
that they controlled the company? Wouldn't you have
gotten those already?
MR. PATCH: Well, their - - - their e-mail
system at MatlinPatterson in New York is different
than the e-mail system in VarigLog in Brazil. So,
you know, look, we have three categories of
documents, just so we're clear. Bank records, which
they refused to produce; internal e-mail, which they
refused to produce - - -
JUDGE RIVERA: Well, why - - - why couldn't
you get the bank records from the bank?
MR. PATCH: Because banking laws down there
are extraordinary, number one, but second, why
couldn't we get them from VarigLog? And we told - -
- and the court ordered VarigLog - - - Justice
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Kapnick said, go get the records yourself and produce
them, and they didn't - - - wouldn't - - - refused to
do so. That's why they were defaulted. But I don't
want - - - I don't want - - -
JUDGE PIGOTT: Is it - - - is it - - - is
it part of your argument that now - - - all right,
Varig's gone, they - - - I mean, you got a judgment
against them, I assume - - - that MP can do
everything that you would have asked Varig to do
because - - - go ahead.
MR. PATCH: I didn't want - - - I - - - I
think the answer to that is absolutely. They clearly
have the ability to go down there and look, one of
the reasons this is not GenOn, and you'll hear about
it, this is not a parent-subsidiary case. This is a
very - - - case where they asked for, demanded, and
received - - -
CHIEF JUDGE LIPPMAN: But you think it's a
deliberate bad faith case?
MR. PATCH: I think - - - no - - - no - - -
how - - - I don't want - - - I want to say they're
grossly negligent. Voom says if you don't - - - if
you do - - - don't do these things, if you do them
late, that's gross negligence. Anoth - - - the other
cases say if you don't make inquiry, follow up the
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case that says - - - you know, 915 Broadway. They
never asked. They sent out the late order - - -
CHIEF JUDGE LIPPMAN: Not negligence, gross
negligence.
MR. PATCH: Gross negligence.
JUDGE ABDUS-SALAAM: And then - - -
MR. PATCH: And then finally - - - and I
don't want to forget to say this - - -
JUDGE ABDUS-SALAAM: Go ahead. I'm sorry,
counsel. I don't want you to forget to say anything.
Go ahead.
MR. PATCH: - - - is that there's a
disposal here. When they were clearly in charge in
March of 2009, when the so-called computer crash
occurred and the e-mails were lost, they destroyed
the hard drive. We have two cases - - - the Weiss
case - - -
JUDGE ABDUS-SALAAM: You're saying MP
destroyed or MatlinPatterson - - -
MR. PATCH: And - - -
JUDGE ABDUS-SALAAM: - - - they destroyed
it, not VarigLog?
MR. PATCH: They were in charge, they
destroyed it.
CHIEF JUDGE LIPPMAN: Yeah, yeah. But - -
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- but you think they made a conscious decision to
destroy it?
MR. PATCH: I think they - - - yes, they
made a conscious decision to get - - - to destroy - -
-
CHIEF JUDGE LIPPMAN: That's - - - that's
more than gross negligence, isn't it?
MR. PATCH: That is, and that is a separate
grounds for - - -
CHIEF JUDGE LIPPMAN: It's more than - - -
it is more than gross negligence in your mind?
MR. PATCH: I - - - I believe it is.
CHIEF JUDGE LIPPMAN: Okay.
MR. PATCH: I - - - I think that you can't
- - - they took away the - - - the - - -
JUDGE RIVERA: You say it's a voluntary
decision to put you in a worse position?
MR. PATCH: They - - - I don't know whether
they did it - - - why they did it, all I know is that
we today - - - you know, forensically you can recover
data. And if they had corrupt hard drives, we would
have said, give them to us, we'll hire somebody, and
we'll see what we can find. Instead they destroyed
them.
JUDGE ABDUS-SALAAM: Before you sit down,
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counsel, I just wanted to ask about the relevance of
the documents, because you're saying we should find
that they were at least grossly negligent and then
there would be a presumption of relevance. Did the -
- - did the court below say that there was relevance
to these documents or - - -
MR. PATCH: Yes. Yes, she did, three
times, and it's at - - -
JUDGE ABDUS-SALAAM: But - - - but wasn't
it based on the presumption of gross negligence?
MR. PATCH: She eventually relied upon the
- - - she found gross negligence and she found the
presumption but she also found relevance. And - - -
JUDGE FAHEY: What if it wasn't gross
negligence?
MR. PATCH: Then she - - - then we proved
relevance. She found it.
JUDGE FAHEY: Could you establish - - -
could you - - - could you establish sufficient
relevance to - - - to establish ordinary negligence?
MR. PATCH: Yes, absolutely.
JUDGE FAHEY: Where so?
MR. PATCH: We did it three different - - -
three different ways and the real problem, the second
mistake - - -
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JUDGE FAHEY: No, just tell me the three
ways. You said you did it three ways. Tell me, what
are they?
MR. PATCH: The first way we did it is we
showed other e-mail where employees were complaining
about MatlinPatterson.
JUDGE FAHEY: Um-hum.
MR. PATCH: That leads a natural inference
that their other e-mail would have been talking about
it and importantly, not a single e-mail was produced
that even says the word MatlinPatterson.
CHIEF JUDGE LIPPMAN: What are the other
two ways?
JUDGE FAHEY: You got the - - - the chain
e-mail to Born; is that the one you're talking about?
MR. PATCH: Yes.
JUDGE FAHEY: All right, that's one. What
are the other two?
MR. PATCH: The other - - - on the bank
records - - -
CHIEF JUDGE LIPPMAN: Finish - - - finish
the two up.
MR. PATCH: - - - on the bank records, we
showed other bank records that showed payments going
out to Matlin-controlled companies. The court found
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- - - the - - - the court agreed and then said that's
cumulative. But in Voom, the same argument was made
and the court found the same division - - - the court
found - - -
CHIEF JUDGE LIPPMAN: Okay, what's the
third way, counsel?
MR. PATCH: And the third way is - - - is
on these communications with the government
authorities. Remember, this is hard documents, not
just ESI; hard documents.
JUDGE FAHEY: So in the hard documents you
got the e-mail from Chan to Born, the banking
records, and the communications with government
agencies?
MR. PATCH: That's right.
JUDGE FAHEY: All right.
CHIEF JUDGE LIPPMAN: Okay, counsel.
You'll have your rebuttal. Let's hear from your
adversary.
MR. PATCH: Thank you.
CHIEF JUDGE LIPPMAN: Thank you, counsel.
MR. RICE: Thank you, good afternoon. May
it please the court, Tom Rice from Simpson Thacher
for the respondents, the MatlinPatterson defendants.
CHIEF JUDGE LIPPMAN: Counsel, what is - -
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- what is - - - what is MatlinPatterson guilty of, if
anything?
MR. RICE: Matlin - - -
CHIEF JUDGE LIPPMAN: Negligence, gross
negligence, deliberate? What - - - what went on
here?
MR. RICE: Honestly, Your Honor,
MatlinPatterson is not guilty of any degree and I
think - - -
CHIEF JUDGE LIPPMAN: Why, because they're
not - - - they're not an alter ego and therefore they
have no control?
MR. RICE: Well - - - well, a few - - - a
few reasons, number one - - -
CHIEF JUDGE LIPPMAN: Go ahead. Go ahead.
MR. RICE: - - - number one, on the
question of control - - - and again, I don't need to
argue these because ultimately, we have a - - - we
have a exercise of discretion which assumes control -
- -
CHIEF JUDGE LIPPMAN: No, no, we understand
those arguments.
MR. RICE: - - - assumes negligence but - -
-
CHIEF JUDGE LIPPMAN: Argue it for now, go
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ahead.
MR. RICE: - - - but - - - okay, if I can.
First on the question of control, this is yes, they
put forward some facts about control. Those are
hotly contested, everybody concedes they haven't
tried and won that issue. And what Mr. Patch has
conceded in his papers is they need to show control
over the documents and there - - -
CHIEF JUDGE LIPPMAN: Your - - - your - - -
is your argument that the board is independent or was
independent?
MR. RICE: Abs - - - absolutely it was,
Your Honor, but - - - but - - - but I think that goes
to the ultimate mer - - - that goes more to the
ultimate merits of the alter ego question. Here my
adversary agrees that the question is control over
documents, and there is almost no evidence of the
record of control - - -
CHIEF JUDGE LIPPMAN: What - - -
MR. RICE: - - - of the documents.
JUDGE ABDUS-SALAAM: Well, but six judges
determined that you did have control over the
documents, the - - -
MR. RICE: I'm - - - I'm sorry?
JUDGE ABDUS-SALAAM: Six judges determined
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that you did have - - -
MR. RICE: At which - - - which is why,
Your Honor, I - - - I don't - - - I - - - I frankly
am trying to answer the court's questions. Even
assuming that, right, I think the exercise of
discretion here was that we don't have - - - that - -
- that there wasn't neglige - - - there wasn't gross
negligence and there wasn't a showing of prejudice.
I'm trying to - - -
CHIEF JUDGE LIPPMAN: So if you - - -
MR. RICE: I'm just trying to be
responsive.
CHIEF JUDGE LIPPMAN: - - - if you
controlled it and you were negligent, still not
enough for them to prevail?
MR. RICE: They still need to show under
the law of the - - - of the courts as - - - as it's
developing in this state, Your Honor, it still - - -
they still have to show that the - - - that they were
prejudiced, the documents were relevant and that they
were likely to be held from them - - -
CHIEF JUDGE LIPPMAN: Your view is - - -
MR. RICE: - - - and they haven't done
that.
CHIEF JUDGE LIPPMAN: - - - the same as the
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Appellate Division that - - - that they weren't
prejudiced and you are by the lower court decision?
MR. RICE: We would - - - we would be
terribly prejudiced. The charge - - -
CHIEF JUDGE LIPPMAN: Is the case over if -
- - if - - -
MR. RICE: I - - - I don't - - - you know,
I mean, the - - - is the case over? We would
certainly - - - would - - - would argue below it's
not over, but - - - but a charge that would say - - -
in an alter ego case that would say that we had a
duty to preserve the documents and didn't because we
had some sort of control or enough control, that, in
an alter ego case, would be terrible and would be
damaging.
JUDGE STEIN: Is - - -
JUDGE PIGOTT: Well, that's not what you're
going to get. It - - - it - - - it seems to - - -
I'm - - - I'm wondering why this doesn't wait. I - -
- I - - - I kind of thought that Judge Andrias, you
know, had a point there. So many of these spoliation
cases rel - - - one lawyer can say something and - -
- and - - - and you know, if that lawyer's saying it,
it's probably not true; another lawyer can say
something that say if he says that or she says that,
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it's probably gospel, and there's just so much stuff
that goes into, you know, the preparation for trial
and in the trial.
MR. RICE: Um-hum.
JUDGE PIGOTT: Why wouldn't this wait and -
- - and if - - - and if the facts so prove, why
wouldn't Judge Kapnick be able to make whatever
determination she determined in - - - in terms of the
- - - of what inference ought to be drawn, et cetera?
MR. RICE: I mean, if - - - if, Your Honor,
there's going to be - - - well - - - well, first of
all, because the plaintiff move on a fully-developed
factual record which had been going on for three-and-
a-half years, they had every chance, every
possibility to show everything here, control,
negligence - - -
JUDGE STEIN: Except for that the - - - the
records were gone.
MR. RICE: Except - - - though, but - - -
but, Your Honor - - - but the - - - on the records
that were there, they had everything that they
needed, everything that they're going to be able to
develop in order to put forward the case before the
court as to whether or not the negligence was gross
and as to whether or not these documents were
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relevant.
JUDGE STEIN: Let me ask you this; if - - -
if there's negligence, if there's gross negligence,
if some sanction is appropriate, does it have to be
an adverse inference?
MR. RICE: Of course it doesn't have to be
an adverse inference and - - - and - - -
JUDGE STEIN: And if it is an adverse
inference, couldn't the - - - what you describe as
the extreme prejudice, couldn't that be mitigated by
the nature of whatever the instruction from the court
would be?
MR. RICE: I - - - I - - - I mean, I don't
believe, Your Honor, it can - - - it can be mitigated
enough in - - - in this case, or frankly, in any
case, and ultimately what - - - what the Appellate
Division did was said, we're doing a balancing, we're
looking at the degree of negligence, we're looking at
the weakness of the showing of any relevance, we're
looking at the severity of the sanction, and we don't
think something's relevant here. That's - - - that
is an exercise of discretion - - -
JUDGE ABDUS-SALAAM: Didn't - - - didn't
the Appellate Division - - -
MR. RICE: - - - that's an - - -
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JUDGE ABDUS-SALAAM: Excuse me, counsel,
didn't the Appellate Division majority say that the
plaintiffs didn't raise relevance or they didn't say
that the documents were relevant, that they were
relying on the - - - the presumption of gross
negligence?
MR. RICE: Here - - - here's what happened.
JUDGE ABDUS-SALAAM: But that's not true,
is it?
MR. RICE: Well, it - - - it is true. What
- - - what - - - what the Appellate Division said is
in the brief before them, they didn't affirmatively
raise the question of relevance. What they did do is
put forward - - - and they said they put forward all
the facts they have in response to our showing,
trying to rebut any - - - any showing of relevance.
But they put forward facts in that context, so the
plaintiff has told this court on this appeal, we put
forward the facts there. So I think what the
Appellate Division said in the footnote is absolutely
true that the facts were there, they had a chance to
do it.
Here we're talking about - - - here we are
talking about an - - - an exercise of discretion by
the majority, three experienced judges who had before
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them the fully developed record, and on that, they
found that they didn't meet their requirements. And
they did it - - - we heard about - - - something
about a fundamental issue before the court. There's
a real question in the area of ESI as to whether or
not negligence should be enough. It's been en - - -
enough in this court's jurisprudence so far that
we've adduced to the court the proposed federal rule,
which it will be effective absent congressional
action on December 1, in which there's a study in
which they said in the world of the ESI where there's
so much room for error and so much room for a game of
got you, you should not be able to - - -
JUDGE STEIN: This is dest - - - this is
more than just that. This is a actual destruction of
- - - of - - - of hardware.
MR. RICE: This - - - this is - - - this is
not - - - okay, okay, destruction of hard drives.
Thank you so much for raising that. They're trying
to pin that on my clients? The - - - the - - - the
hard drives failed in February and March. My
clients, this administration and management was up at
the end of the year before that. The company filed
for bankruptcy in December. It's in the record at R-
604 and 605 that VarigLog's CEO herself didn't know
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about the - - - the problem with the - - - you know,
the - - - the crashes until after the bankruptcy.
JUDGE PIGOTT: Was that Born?
JUDGE FAHEY: That's - - - that's not the
point. Isn't the point when you - - - when you
should have put a litigation hold and preserve the
information on it, not when it happened later?
MR. RICE: I'm - - - I'm - - -
JUDGE FAHEY: And let me just finish my
thought. And I could be wrong, but I thought that
the New York action beg - - - began approp - - -
approximately eleven months before the crash, so you
would theoretically then have said okay, we had a
problem, we have this Florida action, now that's been
closed, now we got a New York action so we got to
preserve it. I thought that was the basis of - - -
MR. RICE: Judge Fahey, two - - - two
different arguments or two different points. One,
absolutely; you're absolutely correct. The question
of whether we should have preserved or not is one
that arose by October of - - - of 2008 when we were
brought into the case. That's absolutely right, and
at - - - and what the Appellate Division found is our
failure to do that was, at worst, mere negligence.
What I thought Judge Stein was asking is didn't you
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do worse than that by not preserv - - - also
preserving the crashed drives when they happened in
2009, and what I'm telling the court is the record
evidence at 604 and 605 and again at - - - at 652 is
that the company didn't know about it until after the
bankruptcy when we are not in control under anybody's
allegation and we didn't know about it.
JUDGE RIVERA: But when - - - when - - -
when did the hard drives get destroyed?
MR. RICE: Hard drives got dest - - - hard
drives - - - there was two crashes, one in February -
- -
JUDGE RIVERA: I'm not asking about the
crash. I'm asking about the hard drive being
destroyed.
MR. RICE: I - - - it - - - it's not in the
record, Your Honor, and we don't know when it
happened but it happened some - - -
JUDGE RIVERA: It's not a problem that you
don't know?
MR. RICE: It doesn't - - - it's - - - it's
not a problem where I don't have a burden of proof on
- - - on this issue at all, Your Honor.
JUDGE STEIN: Didn't - - - didn't you put
somebody in charge of IT? When was that - - -
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MR. RICE: Didn't we - - - no - - - no,
Your Honor, we did not. There were a couple of e-
mails in the record that show that a consultant went
down to consult on IT. The deposition evidence,
which is marshalled in Mr. Hefter's affidavit, is
quite clear that the decisions about everything were
made by the board and by the management with the
consent of the overseers.
CHIEF JUDGE LIPPMAN: So absent - - -
absent intentional destruction on your part, you
don't get the harshest sanction?
MR. RICE: I - - - under the federal rule -
- -
CHIEF JUDGE LIPPMAN: In its simplest for -
- - yeah - - -
MR. RICE: Under the federal rule, that's
true.
CHIEF JUDGE LIPPMAN: You think that should
be our - - - our rule?
MR. RICE: I - - - I think, Your Honor,
there's a good case for it, but you don't need to go
there. This is - - - there was an exercise of
discretion that in no way was an abuse of discretion.
It doesn't - - - it wasn't formed by any errors of
law. It doesn't shock the conscience. It
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absolutely, positively - - -
JUDGE PIGOTT: Well, one of the things in
my experience is is that some of this - - - this
stuff evolves, you know, you get in the middle of the
trial and somebody says oops, look what we found, and
all of a sudden you got - - - you know, not
necessarily a spoliation issue but you got an
evidentiary issue. And how do - - - how - - - I - -
- I think this Judge Andrias's point is, you know,
why isn't the trial court, you know, going to be put
in charge of this, and if - - - if - - - if there's
going to be a charge to the jury as - - - as he was
suggesting that they may, but they do not have to,
conclude that there has been - - - there's been some
mis - - - misbehavior on the part of - - - of MP - -
-
MR. RICE: So, Judge - - - Judge Pigott - -
-
JUDGE PIGOTT: - - - why wouldn't that be a
better way to do it?
MR. RICE: Judge - - - Judge Pigott, what I
understood Judge Andrias to be saying is they should
get a second bite of the apple now and this should be
remanded for an additional discovery and/or hearing.
Of cour - - - what - - - what - - - what was before
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the court was a motion for sanctions, it was - - - it
was granted and then that was reversed and that's it.
If further facts develop at trial that - - - that
give rise to the trial court wanting to do something
other and different based on the facts presented, of
course the court can do that.
JUDGE PIGOTT: So you're saying that - - -
that any decision that's made in - - - in - - - in
the - - - in the Appellate Division at this time is
only binding with respect to the facts as they
existed at the time that the Supreme Court made its
decision in December of 2012, and anything that's - -
- that's developed since is a new ballgame?
MR. RICE: If something develops at - - -
during the course of the trial, Your Honor, I think
the court has got discretion to deal with it. That's
- - -
JUDGE ABDUS-SALAAM: Counsel - - -
JUDGE FAHEY: You know, the way I read
Judge Andrias is that - - - God, I - - - I could be
wrong, but it seemed that he was saying that the - -
- it was not gross negligence, which of course would
- - - would benefit you and put a greater burden on
them. That's what I thought.
MR. RICE: He - - - he agreed with that,
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yes.
JUDGE FAHEY: That's what the majority was
saying, so he was agreeing with that, but - - - but
that - - - so there's no adverse inference but there
- - - that's mandatory, but it could be permissive
and it - - - it depended on prejudice and it needed a
hearing. That's the way I understood him to say.
MR. RICE: I - - - I think - - - I think
that's what he was suggesting, Your Honor, what - - -
Your Honor, was that they should go back and be able
to further try to adduce facts in - - - in the
context of this motion - - -
JUDGE FAHEY: I see.
MR. RICE: - - - to do it. And I - - -
CHIEF JUDGE LIPPMAN: You don't believe
your argument is basically its simplest form that the
AD did not - - - the Appellate Division did not abuse
its discretion - - -
MR. RICE: This - - -
CHIEF JUDGE LIPPMAN: - - - in terms of our
standards of review, that's as far as you go?
MR. RICE: I - - - I think that's
absolutely right, Your Honor. This - - - there are
lots of interesting and different - - -
CHIEF JUDGE LIPPMAN: Without getting into
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all of these - - -
MR. RICE: Right, I think there are lots of
interesting and tough questions here, you know, as
they relate to the question of what New York is going
to do, because this court hasn't really spoken on it,
on the question of - - - of, you know - - - of - - -
of spoliation in the area of - - - of ESI,
electronically stored information, but you don't need
to get there in this case in order to affirm, because
we're talking about fundamentally a sound exercise of
discretion by the Appellate Division.
CHIEF JUDGE LIPPMAN: Okay.
JUDGE ABDUS-SALAAM: I just want to - - -
CHIEF JUDGE LIPPMAN: I'm sorry, Judge
Abdus-Salaam.
JUDGE ABDUS-SALAAM: - - - clarify this for
us. We are talk - - - you - - - you're talking about
ESI because there were documents involved here and I
believe that plaintiffs also raised issues about the
documents, 35,000 boxes of documents that were never
looked into. So I just want to be clear that what's
before us, you're - - - you're saying is limited to
the ESI?
MR. RICE: Yeah - - - yes, Your Honor, and
thank you for raising that. So let me - - - so - - -
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so the motion was - - - right, the motion was for - -
- for destroyed ESI and hard-copy documents. There
is not a shred of evidence in the record that after
the litigation was commenced, there were hard-copy
documents that were destroyed. In fact, Ms. Ohira,
the CEO, said, after I got there in November of 2008,
everything was saved, 35,000 boxes of documents; it
was a mess. They were keeping everything all
together. That stuff not being produced, that
happened after my client, by anybody's imagination,
is out of control by VarigLog and the bankruptcy
trustee. All of those shenanigans in the - - - in
the litigation about what they were producing and
what they were not is not - - - has nothing to do
with my client.
CHIEF JUDGE LIPPMAN: Okay, counsel.
Thanks, counsel.
MR. RICE: Thank you, Your Honor.
CHIEF JUDGE LIPPMAN: Counselor, rebuttal?
MR. PATCH: Yes, thank you.
CHIEF JUDGE LIPPMAN: Counsel, what about
the issue of the Appellate Division? Can we say as a
matter of law that they abused their discretion?
MR. PATCH: I don't think that that's the
standard. I'm asking you to find - - -
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CHIEF JUDGE LIPPMAN: The - - - the
standard of our - - - what is the standard of our
review?
MR. PATCH: They said they were rul - - -
making a matter - - - ruling as a matter of law, so
they made a ruling that this record did not support
gross negligence, and in doing that, they made an
error. You can correct that error, that's not an
abuse - - - that's not discretionary. The evidence
is that they didn't do it - - -
CHIEF JUDGE LIPPMAN: Or a matter - - - as
a matter of law, the Appellate Division was wrong in
what it did?
MR. PATCH: On gross negligence.
JUDGE PIGOTT: Didn't they say on the law
and the facts?
MR. PATCH: Yes.
JUDGE PIGOTT: And we don't review facts,
so how do we - - - how do we get - - -
MR. PATCH: They said they did not change
any of the facts, so they're tak - - - we're all
taking the facts as stated, and they made a decision
that was different, so, you know, five - - - out of
the six people who viewed it, three of them decided
that - - - that as a matter of law it was not gross
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negligence.
But we know that the cases say if you don't
issue a lit hold, it's gross negligence. If you
don't - - - if you do one late - - - late - - - it's
gross negligence. If you don't follow up and make
sure that every one of the custodians actually does
it, that's gross negligence, and if you take hard
drives and you destroy them, that's gross negligence.
We have case after case after case. So it's not a
matter - - - you need to correct that record.
The second mistake they made is in the
burden of proof they placed on me with respect to
proving relevance, and what they did is you have to
start at the - - - at the far right. The well-
developed common law of spoliation in New York says
you don't have to prove relevance. And this same
division, literally weeks apart - - - and there's the
Strong case holding that once you show negligence,
that's enough for common law spoliation so it's not -
- - on the non-ESI stuff, we're done.
Then you get the ESI and there's two
layers, right. There's a layer of cases that say you
have to show basically relevance in the broadest
sense that it's sort of discoverable, and I cite
those four cases to you, and then there's one other
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case, Voom, that goes the extra mile, adopts the
Zubulake standard, and says you have to not only
point relevance in a broad sense that they have to do
with the issues; you have to prove that they would be
favorable to you. And that's the rule they applied
here.
Now, I think I did that by showing that
they - - - that - - - that the communications with
the government authorities, if they'd been preserved
and produced, would have defeated their argument that
they - - - they were somehow under the control of
these Fiscais guys. I think I would show by - - - I
have to say one thing. This is a wholesale
destruction of documents. This isn't like Voom where
there was a period of six months where documents were
destroyed, where they had stuff before and stuff
after. This is everything.
CHIEF JUDGE LIPPMAN: So while they were in
control, they destroyed these documents and the
record shows it?
MR. PATCH: They allowed the documents to
be destroyed. So the timing, again - - -
CHIEF JUDGE LIPPMAN: Let - - - you're now
- - - but you're - - -
MR. RICE: - - - that's what the timing - -
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-
CHIEF JUDGE LIPPMAN: - - - you're saying
they allowed it because they are one and the same - -
-
MR. PATCH: Yes.
CHIEF JUDGE LIPPMAN: - - - is your
argument? Not that they intentionally destroyed it
themselves?
MR. PATCH: I'm saying that the people at
MatlinPatterson who were in Brazil, who were in
control of this company, didn't take the necessary
actions to preserve the documents, and that is Mr.
Born, Mr. Miller, and Ms. Ohira - - - Ms. Ohira is
the wife - - - the sister. Those are the people that
were running the company.
CHIEF JUDGE LIPPMAN: Okay, counsel. Thank
you both. Appreciate it.
(Court is adjourned)
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C E R T I F I C A T I O N
I, Sara Winkeljohn, certify that the
foregoing transcript of proceedings in the Court of
Appeals of Pegasus Aviation I, Inc. v. Varig
Logistica S.A., No. 153 was prepared using the
required transcription equipment and is a true and
accurate record of the proceedings.
Signature: _________________________
Agency Name: eScribers
Address of Agency: 700 West 192nd Street
Suite # 607
New York, NY 10040
Date: October 17, 2015
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